California’s Calpers, the US’s biggest pension fund, last week reported a loss of 20 per cent of its assets, or more than $40bn, between July 1 and October 20 this year.
State and local pension funds comprise a patchwork of 2,700 funds that manage $1,400bn on behalf of 21m employees, including teachers, firefighters and other municipal workers.
About 40 per cent are underfunded, meaning that they would not be able to pay the future pensions that employees have been promised. State governments have lifted pension benefits ”“ a move that is politically popular ”“ but have often failed to put in more money to pay for them.
Richard Daley, mayor of Chicago, this year convened a taskforce to address the shortfalls in Illinois funds. For example, funding for the Police Fund has fallen to less than 50 per cent.
And when the “policy” is to soak the rich to give to the poor, the government will be soaking the pension funds and 401k’s of working people. Raise capital gains taxes and the tax on dividends and the value of the pension funds’ holdings will decline further. Big bad Exxon is indirectly owned, in large measure, by folks on Main Street so that a “windfall” profits tax will hurt Joe the plumber and Terry the teacher. It makes for interesting sound bites — take from the bad rich corporations and give it to the poor — but that is all that it is, sound bites. Political sloganeering designed to fool the public into believing there is such a thing as a free lunch.
DaveG [#1]: What exactly constitutes “soaking the rich”?
Would you say that the tax rates in effect under Ronald Reagan “soaked the rich”?
Many if not most pension funds count as underfunded when the stock market falls as steeply as it has. That’s not reason to panic: pension liabilities are long-term and in the long term the market will recover.
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Some say that CalPERS appeared so well funded earlier in this decade that state and local governments increased benefits. If so, that exacerbated the current underfunding.
No, I am not. I am addressing the “Robin Hood” rhetoric that is coming from the Obama camp. But I do say that now is the wrong time to raise taxes, especially on those who create jobs and the new businesses we need to come out of this recession. I read an interesting statistic the other day about tax policy. No matter what the rates imposed, government collects 20% of GDP. At higher rates, investment slows, the growth of GDP slows and people make economic decisions based on tax rates, like investing in shelters. When taxes are lowered, the economy is stimulated, more jobs are created and money is invested. GDP grows faster and the government gets its 20% of a larger base. So the choices seem to be which is better for society as a whole. Getting 20% of a shrinking GDP or of a larger growing GDP where more people are working and earning?
Both the 30s depression and the 70s stagflation lasted more than 17 years.
17 years is a long time to wait for your pension check to arrive. People don’t eat in the long term.
“17 years is a long time to wait for your pension check to arrive”
—Clueless [#5]
What a silly misunderstanding of my reference to pension funds having “long-term liabilities.” CalPERS has assets of some $150 billion. Employers and employees make annual contributions of $11 billion. Thus CalPERS should, without dipping deeply into its portfolio, have ample money to pay benefits until the stock market recovers.
Over valued assets like morgages perhaps?
Another unfortunate fact is that California, like many other states leveraged their pensions in order to make money on the stock market. They had shell monies as “place holders”. I know that when I pulled my 401k monies out of my last employer I got a check from Calpers who was “holding” the money for my employer. I might add that it took a year with monthly phone calls to get my 401k monies back (I began in August of 2006, and did not get it all back until June of 2007
The whole leveraged game has a long way further to fall. If I were a California employee, and could withdraw monies, I would do so.
Public pension funds have been underfunded for years (if I recall, Illinois’ is underfunded to the tune of some $40 billion, and that was before the recent downturn). These are goodies our elected officials are doling out to unions on our dime, secure in the knowledge that they will have either departed or climbed the greasy pole by time the bill comes due.
Irenaeus is right that CalPERS has enough money to pay pensions until the market recovers, but that ignores that fact that it will be liquidating assets at a higher rate (because of the low values) now, thus leaving less in the fund for when the market does recover.
“I am addressing the ‘Robin Hood’ rhetoric that is coming from the Obama camp” —DaveG [#4]
A few words, endlessly amplified and repeated by desperate losers in the opposing campaign.
In 1993, as part of Bill Clinton’s program to close the federal government’s budget deficit, Congress increased the tax rate on incomes above $1 million. Congressional Republicans hooted “Smoot Hawley! Smoot Hawley!” Yet Clinton’s program, by lowering long-term interest rates, help promote real economic growth.
[blockquote]Congressional Republicans hooted “Smoot Hawley! Smoot Hawley!â€[/blockquote]
I sincerely doubt your recollection here, given that Smoot-Hawley was a protectionist law dealing with tariffs, not income taxes.
But I do say that now is the wrong time to raise taxes, especially on those who create jobs and the new businesses we need to come out of this recession.
Is anybody creating jobs in the U.S? That sounds snarky, but I don’t mean it to be – it just seems like the bulk of jobs are being outsourced. I have wondered if, should the economy drop to a certain point, some of that investment money might come back to the U.S. When gas prices kept climbing, it seemed like that might be an incentive too.
Jeffersonian, why would CalPERS liquidate assets – won’t values go up when the economy recovers?
Look, the only ones – – ever – – to create jobs, are people or groups of people who have a product or service they need to make happen, and they need someone to either do the service or build the product. I always get a kick out of those who pooh-pooh “trickle-down” economics, as if any wealth ever actually trickles UP! It does not. Jobs are created by those who have the wealth to pay people to create widgets or services for them. There is no other way real jobs are created. Oh, of course, bureaucracies “create” jobs, God knows they do! But they never create the money to meet the payroll. That always comes from those who are ultimately rich enough to pay people who do the work the employers need done, and who, in turn, pay taxes to support those bureaucratic jobs.
Please, lets don’t kid ourselves. If we tax “the rich,” we shoot ourselves in our working-man feet!!
calPERS would liquidate assets to pay current retirees. (The boomers who are retiring). There is no guarantee that the economy will recover before the boomers retire.
As to creating jobs, it would be a lot easier to create jobs if there was less litigation and regulation.
In the last Depression, a doc who wished to see patients needed to but “hang up a shingle”. There was no income tax, and no malpractice insurance. You worked out of your home, and charged what the market would bear. Nowadays, to set up a practice that met all requirements requires a capital outlay of 160,000 up front, not counting your student loans. Otherwise you will run afoul of a variety of laws that will send you to jail That capital is hard to come by, especially now. So you have to work for a hospital whose bigger pockets will cover that capital investment, and you have to charge enough to cover that 160,000 as well as your salary, and student loans.
Same with other businesses. I was thinking of starting a laundromat. I figured I could buy a distressed small commercial store front, buy 5 washers and driers and set up shop.
Nooo. The various permits, water tax, biohazard permits, waste water permit, not counting the business permits would come to some 50,000, not counting the cost of the store and the machines, the labor of having somebody there (gotta have minimum wage and benefits, even though there is no shortage of folks who would be glad to work for less). The whole thing would require an investment of over 100,000, assuming you rented and did not buy your building or equipment. There would be a minimum of 70 thousand annual payments. Thus, the only way to pay for the state regulation is to “go large” and buy 20 washers and dryers on credit, assuming a steady stream of folks with dirty laundry. That would allow you to cover your overhead, though not necessarily to make much of a profit, unless you were the one sitting there, and the business was therefore your own job.
There would be a lot more jobs created if we axed state regulation, and made lawyers pay for the legal fees of any lawsuit they lost.
[blockquote]Jeffersonian, why would CalPERS liquidate assets – won’t values go up when the economy recovers? [/blockquote]
What Clueless said…pension funds are constantly liquidating and purchasing assets as needed.
Jeffersonian [#10]: Tariffs are a type of tax.
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“CalPERS . . . will be liquidating assets at a higher rate (because of the low values) now, thus leaving less in the fund for when the market does recover” —Jeffersonian [#8]
Correct. That’s the rationale for requiring employers and employees to make larger contributions.
To recap my exchange with Clueless:
— Irenaeus: Don’t panic. Pension liabilities are long-term and the market with eventually recover.
— Clueless: That won’t help you if have to wait 17 years to get paid.
— Irenaeus: CalPERS has enough money to make current payments to retirees.
We shouldn’t be complacent about the financial outlook for CalPERS. Neither should we panic or despair.
It is not clear if CalPERS has enough money to make current payments to retirees. CalPERS has engaged in leverage, and much of its leverage was directed toward mortgages. It has apparent assets, but those assets may be worth far less than their curent value. When they are liquidated, (to pay for current retirees, or to pay folks who withdraw from the fund) then their true market value becomes apparent. That process has not happened.
“Don’t panic” and “Buy and hold” sounds good if you are 30 years old. You don’t have much money in, and you will probably get it back, assuming the fund survives. If you are 50 or 60 it is terrible advice. You may well lose heavily. If folks “panic” or rather wisely withdraw their funds, then last sucker holding gets the empty bag.
Jobs are created by those who have the wealth to pay people to create widgets or services for them. There is no other way real jobs are created.
Granted – but what does it do to our economy – even our security – when those who have the money to create these jobs create them overseas?
As to creating jobs, it would be a lot easier to create jobs if there was less litigation and regulation.
Like regulations that create a living wage and eliminate sweatshops? Aren’t American companies outsourcing mostly because they can pay low wages and don’t have to worry so much about the safety of or risks to their employees? That’s a cynical statement, and I am sorry to make it. But that is how it looks.
There was no income tax, and no malpractice insurance. You worked out of your home, and charged what the market would bear. Nowadays, to set up a practice that met all requirements requires a capital outlay of 160,000 up front, not counting your student loans.
To a certain extent, I agree with you – but what does income tax pay for? And granting that there have been some absurd malpractice suits and some ridiculously high awards – do you think patients should be without recourse when malpractice that affects their health or takes the life of a loved one occurs? Because this does happen.
Tort reform is needed, but the right to some redress should not be eliminated, in my opinion.
Despite your description of what it takes to open a laundromat, in my community, at least, I don’t see a shortage of them. And, while people may be wiling to work for less than a living wage – they still won’t have enough to live?
“Another unfortunate fact is that California, like many other states leveraged their pensions in order to make money on the stock market” —Clueless [#7]
What the evidence that CalPERS borrowed money to buy stock?
Irenaeus, here’s a link:
http://greatinvestments.blogspot.com/2007/06/calpers-invests-in-metalline-mining.html
I don’t know how legit the source is.
[blockquote]Jeffersonian [#10]: Tariffs are a type of tax. [/blockquote]
That’s hilarious. So Republicans supposedly invoked a Depression-era tariff law when Democrats raised income tax rates?? Color me skeptical. Maybe they shouted [url=http://www.timesleader.com/news/breakingnews/Secret_Service_says_Kill_him_allegation_unfounded_.html]”Kill him!!”[/url] instead.
All I know is that my mercy health 401k check (supposedly invested in S&P;index funds) came from CalPERS (and took a year to arrive, with me threatening lawsuits at the end). When I asked my former employer what my 401k monies had to do with CalPERS I was told that “it was all right, they were just holding funds for me”.
To answer your question Sherri, of course jobs move to where costs are lower. When you shop, do you only buy American? Food, mass production items, clothing – the jobs go where the materials and cost of labor maximize return. Here in the US, we create technology jobs and we design the products that others will produce. Dell will outsource helpline jobs which in return, reduces their costs and allows them to make and sell a less expensive computer. No redistribution of wealth is suddenly going to make children’s toys made in the US competititve with those made in China. Those manufacturing jobs are gone forever. We have to create 21st century jobs and be ever ready to react to changes in the global economy.
I haven’t said a word about “redistribution of the wealth,” DaveG, nor do I favor it, so I’m not sure why you mention it. I do question why we should be overly concerned with investors who invest their money and give their jobs to those overseas. It has seemed to me that more and more of those technology jobs we create are also being created overseas, not in the U.S. I’ll look forward to seeing some 21st century jobs being created here — and hope they’re not all road sweeping jobs. 😉 And I apologize for taking this thread off course.
Sherri2 wrote: “what does it do to our economy – even our security – when those who have the money to create these jobs create them overseas? ”
If folks could create jobs in town, they would create jobs in town. When it becomes prohibitive to create jobs in town they will look elsewhere. As I note above, it would take a greater than 100,000 dollar investment and annual outlays of 70,000 up front for me to create a single minimum wage job in town, and that would be with me having no equity, and no profit. It could be done for less than 30,000 without the regulation, and that would be with equity at least in the machines. If one had “partners” who split the earnings 50:50 rather than had minimum wage (which would pay less initially, but more after the business got busy) then after the 30,000 dollar investment in a rental unit and machines costs would drop to about 20,000/year mostly in rent/water/electric.
Now you have created a job. Not a lucrative job, but one that will generate profits. If the partnership works out, then you can open another laundromat and hire another partner. This is how wealth is created in the absence of litigation and regulation.
Nobody has 100,000 to throw away on generating a minimum wage job that will leave you poorer than before.
Sherri said “Those “regulations that create a living wage and eliminate sweatshops? Aren’t American companies outsourcing mostly because they can pay low wages and don’t have to worry so much about the safety of or risks to their employees? ”
Yes. That is why they are outsourcing. If a business only makes 100 dollars a month, than paying somebody 1000 dollars a month means you go bancrupt. If your employee can trip on the floor of the laundromat and sue you for not only the business but your home, car and other assets, then again you go bancrupt.
A partnership model could work. However it requires Amerians to realize that there is no free lunch. It would be a lot cheaper for me to set up a laundromat in Mexico than in Missouri. However I would much prefer to set up businesses in Missouri as I happen to live here. The issues I face are the same issues that companies who command millions of dollars rather than thousands of dollars face.
There is no free lunch.
“To a certain extent, I agree with you – but what does income tax pay for?”
Right now income tax pays not only for military defense, and roads, but also pays for a jobs program for bureacrats with make work “regulation” etc.
It would be a lot cheaper if they focused on defense and roads. I think schools and hospitals should be deferred to the states who should pay for them with vouchers.
“And granting that there have been some absurd malpractice suits and some ridiculously high awards – do you think patients should be without recourse when malpractice that affects their health or takes the life of a loved one occurs? Because this does happen. Tort reform is needed, but the right to some redress should not be eliminated, in my opinion. ”
I agree. I would favor a loser pays the lawsuit system. That is the system in Europe, and eliminates th greater than 80% of lawsuits that were not the fault of the physician. If lawyers wish to take cases on contingency, they should pay the expenses of the hospital/physician in defending the case if they lose.
Right now, the malpractice system is a system of extorting wealth from supposed deep pockets in order to pay for a makeshift disability system. Folks should be expected to pay for their own disability insurance, instead of looking for somebody to gouge when bad things happen. I pay for my own disability insurance. It is the responsible thing to do.
“Despite your description of what it takes to open a laundromat, in my community, at least, I don’t see a shortage of them. And, while people may be wiling to work for less than a living wage – they still won’t have enough to live?”
It depends on what you call “enough to live”. It used to be that folks starting out lived with their parents, rode their bikes to work, and saved their money. My internship year I made 14,000, lived in a walk up efficiency in a building overrun with rats, rode my bike to work and saved money. When I had saved enough money, I moved to a nicer apartment. I then started moonlighting because I was saving up for a car. When I saved enough money, I bought a second hand car (though I found running it was expensive). When I finished my residency (1987) I went to the NIH where my income jumped to 30,000 and I thought that I had died and gone to heaven. I continued to save money and I paid off my debts. I saved more money by continuing to live frugally. After we paid off all debts we considered having children (20,000 to adopt) and eventually did so. I then realized that having kids meant more expenses and eventually got another job.
A “living wage” depends to a large extent on what you need to live. When I was in college I lived on 5 dollars a week. It can be done.
The 5 dollars a week did not include shelter, but it did include food (mostly oatmeal) and what I could scrounge on my off campus job. I did not starve. Nor did I beg. Nor did I borrow. Nor did I steal.
Clueless, where do you live? Here, in Georgia, we have new businesses starting up periodically – that doesn’t seem to be a problem locally, even though we are in a poor, rural area. The jobs we are losing are not small business jobs such as you describe, they are large employers. And maybe the long-term answer is for other countries to value their citizens as much as America values hers.
I don’t want a free lunch. I don’t want “redistribution of wealth” – the Soviet Union gave us a glorious picture of how that works out. But neither do I think corporations should create multimillion executive positions based on the subsistence or below-subsistence incomes of their employees. The issues are not as simple as they are being painted. Somehow a balance has to be struck between allowing the play of market forces and keeping people from being brutally exploited. I don’t know what your background is, but my grandmother worked in a sewing factory where the workers were locked in every day — if there had been a fire, 100s would have died. Such fires happened. They are the reason why an OSHA is needed. I will agree with you that there can be too much government regulation, and that there may presently *be* too much — but I would also contend that when there is no regulation, citizens lives are at risk – and to me, that is as important, more important, than anyone’s pocketbook. I don’t think there are easy answers to these issues.
Well, our college years weren’t so very different. But I question whether, if we leave wages entirely to corporations, the folks on the lowest end of the wage scale would ever “get ahead” – or even stay afloat. I mean no disrespect to you and I am sure you worked hard and endured much to get to your present situation, but – many who scrimped their way through college didn’t (and couldn’t) get the kind of job that awaited you at the end of it. I don’t think we should all be rich, but I do think we have an obligation to offer some protection to those in our work force who are most vulnerable.
I live in Missouri on the border of Arkansas, and Oklahoma. We too have some industry coming in. We also have a lot of businesses closing. Three restaurants closed last week. They could not stay open while paying their workers minimum wage. Their workers are now unemployed and hurting quite badly, as none of the industry is hiring.
There is a fine line between exploitation and employment. I don’t see why the folks in the sewing machine factory needed to be locked in, unless there were concerns regarding theft. Technology currently assists with the theft.
I might add that part of the reason that sewing factories were invented was because of regulaton. Previously folks who wanted to make money sewing took in “piece work”. This was outlawed as being “exploitative”. Folks then were required to work at an hourly wage, despite the fact that many people (especially the old and feeble) could not keep up with the pace that would generate a profit. And yes, it was still necessary to generate a profit, in order to have the work at all. So the old and feeble no longer had jobs. Instead sewing became a young woman’s trade, and sewing factories were invented, with the need to make sure that folks didn’t slack off on the job or steal materials. Ergo the locked doors and the overseer “exploiting” the worker.
It would have been better to let them work at home, No? Then grandma could have earned a little money, and Mom could have earned a little money while still breast feeding the new baby, and supervising Juniors homework.
Regulation put those lives at risk. They could have been sewing in the comfort of their homes, instead of wondering what would happen if a fire broke out, and wondering how the kids were doing at home. More regulation was then invented to “solve” the problem that regulation had caused. And now that we have so much regulation that all clothes manufacturing has been exported to China we are told that more regulation is needed to solve that problem.
“many who scrimped their way through college didn’t (and couldn’t) get the kind of job that awaited you at the end of it. I don’t think we should all be rich, but I do think we have an obligation to offer some protection to those in our work force who are most vulnerable. ”
My best friends are a neighboring family. They are currently legal immigrants, and formerly were illegal immigrants from El Salvador. The father (who is my age, and has kids about the age of mine) owns his own auto repair shop. He crossed the Rio Grande at the age of 17 with nothing but his clothes, and never went beyond sixth grade in El Salvador. He began working first at subminimum wage as a California fruit picker, worked sundry other jobs, and eventually got a break working as a clean up boy in a gas station. He told me that his employer told him that he would have “two weeks to learn enough English to master all the names of the auto parts so they could communicate easily”, and needed to demonstrate that he could do all the work that he was shown. He worked for nothing those two weeks, studied the automotive handbooks at night, and picked fruit on the weekend in order to earn enough to eat. He slept outside and was grateful that it was warm in California. He got the job (at less than minimum wage as he was considered a student) eventually got trained as an auto mechanic, got his GED, got his certificate, took advantage of the amnesty to get his green card and become a citizen, and saved his money. With the money he saved living in a subbasement and riding a bike to work he bought his own shop. With the money he saved continuing to live in the subbasement he bought a house (and then married and began a family). With the money he saved buying less house than he could afford, he bought a couple of rental properties.
I think he makes more than I do now.
Do you think he was “exploited” by the guy who offered him training in exchange for work? He doesn’t. He is very grateful to him, and his gratitude shows in his tithe to our church, and to innumerable things he does for folks in the community (both Anglo and Hispanic).
Do you think more “protection” would have helped him? For few could have been more “vulnerable” as you put it than he.
At the sewing factory, they didn’t want the employees wasting time on breaks. Hence, they locked them in. And no one, not even you, worked harder or with more dedication than my grandmother, who reared two children and two grandchildren after her husband died and never took anything she hadn’t earned with the sweat of her brow – I don’t think you were implying that my grandmother might have been a thief, but you do appear to imply that she might have been a slacker. She worked hard all her life until well into her 70s – working long hours then coming home to do all the things that a mother/homemaker has to do. She was never still when there was work that needed doing – not even sitting down to enjoy a meal with family, but jumping up and down to get more food, more tea, more ice. I think this kind of generalization, labeling people slackers and thieves, makes it easy to dismiss them and what they had to endure.
Previously folks who wanted to make money sewing took in “piece workâ€. This was outlawed as being “exploitativeâ€. Folks then were required to work at an hourly wage, despite the fact that many people (especially the old and feeble) could not keep up with the pace that would generate a profit.
From what I’ve read those same people didn’t generate a profit doing piece work at home either – they eked out a bare living in often primitive conditions, working as hard as they could, until their eyes failed or their general health did. This is the first time I’ve heard that sewing plants were established to benefit workers instead of the owners who rightly saw a chance to increase profits with mechanized processes, much as spinning mills replaced the cottage industry of home spinning because it was more profitable.
We’ll have to disagree on your idea that regulation put the women in sewing factories at risk. Rather, it offered them protection – after a number had died, making it evident that protection was needed. I’m no Luddite, and I believe in private property and capitalism – but I also believe that employees also need some basic protections.
Clueless (#31),
Do you mean that just because it is possible to triumph over adversity, it should be the norm? The story you recount above speaks well to your neighbor and his faith, but would you have wished him to go through what he did if you had known him then and been in a position to assist him? There is enough of the Social Gospeler still in me to feel that Sherri’s points made above have merit.
I also think you’re oversimplifying the rise of the factory system. Lowell and places like it arose because they were seen as more efficient rather than because regulations closed down the putting out system (which persisted in certain places into the post-Civil War era).
Regardless of how hard they worked, it costs more to run a sewing business in a factory than to do piece work at home. You have to pay for the building and the overseer as well as the materials and the labor. And as you yourself point out, the conditions were onerous.
Maybe regulating the sewing factories “protected” the workers, however it is a fact that thanks to the regulation, there are now no no sewng factories in the US. Soon there will be no car manufacturers in the US either, also thanks to regulaton.
It is not possible to make folks create business that will generate a loss under any circumstance other than outright confiscation (whether fascism or communism). People (like my friends) who work hard, scrimp and save their money aren’t going to bust it on people who don’t bring in more money than they put out. If folks who have saved money can’t make a profit by investing in a business, they will either save in their mattress or simply bust it on higher living like most other people did these last two decades.
Thanks to regulation profits are reduced. When they are reduced below expenses, then jobs are lost. This is basic math.
The silver lining is that, and this is true for your own 401K, if you continue to invest through payroll deductions, you are now buying equities at bargain prices and lowering your cost per 401K equivalent share owned. When and if the markets recovers, some if not all of the loss, you will be in a much better place. I have faith in the long term prospects, and the markets will recover some, if not all of their losses. As Dave Ramsey says, there has never been in any 10-year period, a net loss in the market. Yes, there are losses, but if you take any 10-year window, the market has consistently grown. Even today, the Dow is higher than it was after 9-11. Now is the time to buy equities. That’s what Warren Buffet is doing right now, as fast as he can. Just Google his recent actions and statements.
Clueless, I think your claims should be examined a little more closely. Factors such as competition also enter the picture, don’t they? And I am sure the folks who built the original sewing factories did so because of the efficiency and cheaper production of containing the operation in one location and using industrial-strength equipment. Perhaps this is more clearly seen in reading about the industrial revolution in Britain.
Again, I haven’t advocated nationalisation, redistribution of wealth or any other form of socialism. I’ve always thought it was America’s strength that we allowed our capitalist way of life to be tempered by protecting those who could be victimized. I still think so.
There is no guarantee of huge profits any more than there is a guarantee of a free lunch. We need to find and maintain a middle ground that values workers while keeping the environment friendly to investors and businessmen. A little public-mindedness would do our corporations and business leaders no harm, anymore than a willingness to work hard and give dedicated loyalty to an employer will harm employees.
Wow, Sherr2, your calm, cogent comments led me to read this thread all the way to the end. VERY nice job! Thanks!
I would only add that another very large reason it is ‘cheaper to set up a laundry in Mexico’ is because their corrupt system tolerates payoffs to local and regional officials charged with enforcing laws. Have you witnessed the foul, polluted water and sewage running through the streets of cities like Tijuana?? I have — and thank God for regulations requiring protection of water, and the enforcement of those codes.
“As Dave Ramsey says, there has never been in any 10-year period, a net loss in the market. Yes, there are losses, but if you take any 10-year window, the market has consistently grown. Even today, the Dow is higher than it was after 9-11. Now is the time to buy equities. That’s what Warren Buffet is doing right now, as fast as he can. Just Google his recent actions and statements. ”
Warren Buffett may have a 25+ year old time line. I do not. Stocks lost money for 17+ years in the 1970s stagflation, and lost for longer than that in the 1930s. The bit about no losses over 10 years is when you begin counting at 1982.
Yes, the environment is important. So are jobs. Right now China chooses jobs over the environment. We have chosen the environment over jobs. This has nothing to do with Mexico’s corruption (and yes it is corrupt, and I have no desire to move to Mexico or China for that matter).
The big question is what are we going to do to attract jobs. Right now the answer seems to be “nothing” . We are going to hope that China continues to loan us money. This is a prescription for disaster. If we can’t afford our regulation, then we should have less of it.
>>> As Dave Ramsey says, there has never been in any 10-year period, a net loss in the market. <<< What?!?!?! As I write this, today, the S and P 500 index is 20% lower than it was ten years ago today. And from its 1929 peak to 1939, Dow Jones Industrial average fell 60%.
“A little public-mindedness would do our corporations and business leaders no harm, anymore than a willingness to work hard and give dedicated loyalty to an employer will harm employees. ”
You need to pay the bills first. If you don’t have the income, then any “public mindedness” (as with most of our so called non profit companies) comes with large debts to be off loaded on future generations.
Similarly, “loyalty” to an employer is only useful if that employer is solvent. If not, you are better looking for your next job early.
I believe in public mindedness. I believe in tithing, and I pay the tuition of a number of local youngsters whom I think are worth investing in.
I haven’t yet found employees worth investing in outside the members of my practice. However that is because the price of what I could pay folks outside of medicine (or a little babysitting or handyman type help) is greater than the good they could contribute to my bottom line.
Others who might be “public minded” also look at the economics and place their monies where they might do most good. Feeding bureacrats is low on most peoples priorities. That’s just good stewardship.
Clueless, yes, I agree. We should be doing more to help business survive, not hinder it with big government and taxation. Maybe we should lighten up on regulation for a time. These are good ideas. And, LongGone: I did not question Dave Ramsey’s statement. I will have to see if I can get his feedback on this.
Sherri
I don’t think anyone advocates a return to sweat shop practices but people go into business to make money. Labor costs are a huge component of most manufacturing ventures. Apparently, so are the costs of technical advice on the phone or customer services. Someone is going to do the job. So I ask: Why is a worker in the US any more deserving of a job that will suport his/her family than one in India? Why should a manufacturer agree to pay $20 per hour to a worker here when he can get the same services in Malaysia for $8? If he elects to stay here and pay the $20, sure as shooting, someone else will build a factory in Thailand or BanglaDesh and just price him out of the market making all of his US employees jobless, not just the factory hourly worker. You never answered my question before: Do you only buy made in America cause if not, you are as much to blame for the loss of those jobs as the employer is. Will you willingly pay 30 or 50% more for an item to save factory jobs for Americans? If you are, you are part of a very tiny minority. If most Americans were willing to do that, jobs might stay here. We would be the laughing stock of the global economy and we could never sell anything overseas, but some jobs would be saved in vulnerable industries.
Why is a worker in the US any more deserving of a job that will suport his/her family than one in India?
Hi DaveG – because he’s your neighbor? your countryman? Because you want the U.S. to stay strong? With the U.S. producing so little and sending most of the products it develops overseas for production, I wonder how long we can stay viable economically? Also, I note that the Toyota people seem to be doing well despite those high-priced American workers – at least, their plant in Georgetown, Ky, was awfully busy when I was through there last week. Foreigners continue to invest in the U.S. facilities, it seems.
Don’t you wonder, too, what would happen if we ever need industrial resources? When World War II came, we had an industrial base that we could retool for war materiel. We don’t appear to have that now.
I apologize for missing your question about buying American – I gather that you don’t think it matters, but yes, I do look for American-made products when I need something, and I buy them if I find them.
I don’t think anyone advocates a return to sweat shop practices
But we don’t seem to mind them in American-owned plants around the world? Don’t get me wrong, I don’t see these things as black or white or admitting of a one-size-fits-all answer – American companies overseas provide jobs and incomes for people who would no doubt be much worse off without them. But – that isn’t saying we don’t have companies involved in running sweatshops overseas, with inhumane working conditions. To me, that’s wrong, here or abroad.
We live in challenging, changing times – I don’t know what the answers are, but I don’t think finding them should simply be left up to “nature red in tooth and claw.”
Thanks for a good discussion, everyone.
A clarification about California. In the late 90s, CALPERS was overfunded due to the dotcom bubble. So Democratic Gov. Gray Davis and the Democratic legislature said, “Let’s raise state employee pensions; after all it’s their money”. Not only was this blatant pandering to a longtime Dem constituency, it misunderstood a fundamental principle of defined benefit plans: the employer is on the hook for payments in a DB regardless of investment performance. So after the dotcom bubble burst in 2000, CALPERS became underfunded, creating massive state deficits. Along with fallout from Enron, this led to Gov. Davis being recalled and replaced by Gov. Scharzenegger.
A factual correction to #9. Long-term interest rates went up, not down, after the Clinton tax increase. E.g. 30-year fixed mortgage rates bottomed out on Oct. 15, 1993. They did not get back to those levels until the Fed’s aggressive rate cutting in 2002-3, reaching a new bottom on June 13, 2003.
“But – that isn’t saying we don’t have companies involved in running sweatshops overseas, with inhumane working conditions.”
Some sweatshops are inhumane. I think it is outrageous that child labor is permitted in Asia (I’m not talking about teenagers). Many Asian sweatshops are no better than slavery.
However the idea that every American is entitled to a “living wave” that includes a home of their own, a car, and a pension needs to be reviewed. A wage that does not permit you to buy a home is not “inhumane”. In most countries people do aspire to a home of their own. They usually build it themselves, one room at a time. By the time you are a grandfather, if you work hard, you have a fine home and no debt and further more if anything goes wrong with the home you can fix it. Now I realize that regulation makes it difficult for most Americans to do what their ancestors did, which is build their own homes without an army of inspectors, building codes etc. however I believe it is still possible. It is heavily discouraged, I suppose to prop up the real estate/building industry which generates taxes.
So now homes are bought almost invariably on credit. Which worked well until folks decided that defaulting was okay if it meant a higher standard of living. I honestly don’t understand why defaulting is considered acceptable. Eight years ago, I was suckered into buying “too much house” and then found that my job evaporated and that geographical restrictions prevented me from gettin a new job within 200 miles. I took the 75,000 dollar loss, moved away, rented a one bedroom apartment for three years in which we lived with two adults, two children, a dog and a cat (never again, I have learned to read my contracts) and eventually paid off the debts, saved up once more, and bought another much smaller home (which is now paid off). It did not occur to me to mail in the keys.
What folks did in the last Depression is to simply “take in lodgers”. This provides income while keeping you in your home. It is the strategy used all over the world for folks whose income does not provide them with a “living wage”. They find other sources of income, rather than trying to coerce business through the power of the state, to pay them more than they generate in revenue.
What has happened to the children of the Pioneers?
However the idea that every American is entitled to a “living wave†that includes a home of their own, a car, and a pension needs to be reviewed.
Please let me clarify that by a “living wage” I mean – the amount necessary to pay the rent, the heat, light and water and put basic, nourishing meals on the table. Transportation costs of some sort have to be included for those who cannot live in walking distance of where they work, buy groceries, do laundry, etc. I’m not talking about “entitlements”.
Now I realize that regulation makes it difficult for most Americans to do what their ancestors did, which is build their own homes without an army of inspectors, building codes etc. however I believe it is still possible. It is heavily discouraged, I suppose to prop up the real estate/building industry which generates taxes.
Or to ensure that your hand-built home doesn’t fall down on your head, as many did? Have you read of the buildings that simply fell into the streets, killing their occupants, from Rome forward, when there were no guidelines to ensure minimum safety? Or how many were firetraps? Do you think many people know how to safely build, wire and put plumbing in a home? Are all physically able to do that? Do most people have the time to do that, while working long hours and meeting whatever other demands are placed on them? Pioneers living alone in a wilderness spent their entire daily life working on meeting their day to day needs, from building their homes to killing and growing their food. But for people who live in cities, for people whose working lives are spent working for others, has that really been an option? It might be hard for employers to find employees with time available, too, if the workers were having to build their own shelters.
I don’t personally know anyone who has defaulted on a home loan, though I know it is happening all over – but I wonder if it happened because they thought it was “OK” or because they naively believed that somehow their limited means would stretch so much farther than they did? In other words, do you believe all the defaulting was a deliberate plan on the part of the defaulters?
What folks did in the last Depression is to simply “take in lodgersâ€. This provides income while keeping you in your home. It is the strategy used all over the world for folks whose income does not provide them with a “living wageâ€.
Do you think the poorest are living in homes they own and can freely take lodgers into? Are they allowed to have safety concerns about the kind of people who might be willing to lodge in the sort of home they have to offer?
And again, why do foreign investors have no problem paying American workers?
Obviously the amount it takes to pay the rent depends on where you live. If you live in a one room home that you are building yourself (as did the pioneers, and as do folks in other countries) “rent” is next to nothing. If you live in a one bedroom apartment in a run down area again (as I did), rent is if not cheap at least manageble.
“Or to ensure that your hand-built home doesn’t fall down on your head, as many did? Have you read of the buildings that simply fell into the streets, killing their occupants, from Rome forward, when there were no guidelines to ensure minimum safety? Or how many were firetraps? Do you think many people know how to safely build, wire and put plumbing in a home? Are all physically able to do that?”
No. But folks could learn. They learn in other countries. They used to learn in this country. Nor is it so difficult. Habitat for Humanity does this cheaply. Food for the Poor builds homes in Honduras for 2,000. Yes, your building may leave much to be desired. However it will be yours, it will be cheap and it is better than being homeless as many are. It is also better than going deeply into debt and having that follow you around.
And if the regulations protect you from having the home you built fall on you, but leaves you homeless because you can’t afford the homes others build, why is that an improvement?
Again. Hispanic immigrants do take in lodgers. If they are troublesome they kick them out. Here regulations say you can’t kick certain folks out lest you run afoul of various diversity related issues. However the problem again is regulation. Why shouldn’t folks take in lodgers? Why shouldn’t they decide whom they should share their home with?
If we buy a farm we hope to build the barn ourselves. If we are able to build a competant barn, we are considering building the house ourselves. We have never done this either, and we are two middle aged overweight women, by no means extraordinary. However if other folks can do this, I’m sure we can learn too.
Where is that good old American can do spirit and know how? We are a great country. Why are we wailing for the government to fix things for us?
I will stress again that I am not referring to people living in the lap of luxury at the expense of others. How will we new home builders get the materials from the supply center to our home site? Who will teach us to wire, do plumbing, etc., and what will that cost? How will we fit this into a day already full of working to feed ourselves? How will we afford the building materials, since we will not be able to take advantage of a bulk discount as builders do? What if we injure ourselves in the process and are laid up? What if our house burns up because, although we have had training in wiring, we have no experience and missed an important step? What if our neighbors’ houses catch on fire too? Do we have any responsibility there?
Again. Hispanic immigrants do take in lodgers. If they are troublesome they kick them out.
Have you checked the crime statistics to see if “kicking them out” is really so easy?
Good luck with your barn building – I think that will be an interesting experience and envy you what you will learn and the satisfaction that will come from the accomplishment. But in an increasingly urban society, I don’t think individual home building is going to be a solution that many can avail themselves of.
I, for one, am not wailing for the government to fix things for us – but I am thankful that it safeguards us from unscrupulous and untrained construction companies, food unsafely prepared or unsafely grown and a lot of other such things. And I think it has a role to play in the financial crisis – a careful, well thought out role. Regulations are like everything else – they should be applied with good judgement and limited to things that can well be regulated and where need for regulation is great. Surely some existing regulations could be pruned, but I don’t buy the argument that regulations are our enemy and cause our woes.
“And again, why do foreign investors have no problem paying American workers?”
Foreign investors do have trouble paying US workers. Even the Toyota plants groan about the excess regulation here and therefore build fewer plants than we would like. They do better than GM because they are non union and didn’t take on inflated pension obligations.
Obviously they have trouble paying US workers under our regulations, otherwise we’d have more foreign manufacturing jobs here in the US with a net inflow, instead of a net exodus of jobs.
Foreign plants can do the math. Transportation costs money. If you can built close to your consumer base, you do that.
” I don’t personally know anyone who has defaulted on a home loan, though I know it is happening all over – but I wonder if it happened because they thought it was “OK†or because they naively believed that somehow their limited means would stretch so much farther than they did? In other words, do you believe all the defaulting was a deliberate plan on the part of the defaulters? ”
No. I think they bought too much house because “everybody was doing it” and because they figured that if bad things happened the government would have to “do something to fix it”. We have gotten used to the idea that if bad things happen, the government will fix it. That is a large part of the problem. The government can only fix it with the savings of responsible people. (Currently the next several generations of Americans, since our generation is so worthless).
“How will we new home builders get the materials from the supply center to our home site? Who will teach us to wire, do plumbing, etc., and what will that cost? ”
We get it from Lowes or Hechingers. Check it out. Step by step instructions. All the supplies you need, and no necessity to go out and chop down the timber for your home.
The way folks in Mexico (or Sri Lanka) do it is they buy their materials and store them on site, brick by brick as need be. If there is a natural disaster, they go scavenge bricks. When they have enough for a room they build it.
“How will we fit this into a day already full of working to feed ourselves? ”
The same way the pioneers did. It becomes “family recreation”. House raising parties are common in Mexico and were common in the US. The Amish still do it.
“How will we afford the building materials, since we will not be able to take advantage of a bulk discount as builders do? ”
The materials are not nearly as expensive as the labor. And as noted, the materials are obtained slowly over time.
“What if we injure ourselves in the process and are laid up? What if our house burns up because, although we have had training in wiring, we have no experience and missed an important step? What if our neighbors’ houses catch on fire too? Do we have any responsibility there”
Are you listening to yourself? Is this really the way you think? Can you imagine our pioneer ancestors reading this blog? What would they think of us? Have we really become such milksops that we can’t do what folks in Mexico do without the help of Lowes, Hechingers, power tools, backhoes, and a wealth of instructional material?
Clueless asks: In other words, do you believe all the defaulting was a deliberate plan on the part of the defaulters? “
May I offer an observation, as one who has just been reading this discussion with interest? I do not think it was a “deliberate plan,” but it may have been the result of a “deliberate inattentiveness to planning.” I once swore that, when I got older, I would never begin a sentence with, “when I was young. . . .” but I cannot help but have the feeling that the ‘younger generation’ has a somewhat indifferent attitude (in general) about life and its obligations. “Well, we will give this marriage a try, and if it doesn’t work out, I guess we can just divorce. . .” is one example of an attitude that seems prevalent. And I might suggest that we could extrapolate that attitude into the making of mortgages and / or other contracts. “Well, we’ll give it a try, and if we can’t do it, we’ll walk away. . .” Am I just turning into an old fuddy-duddy, or is there some sense in this?
Consider a factor related to the last several posts. In our area one city (@50,000) is now charging FEES for a home building permit of over $70,000! That is exclusive of land, materials and labor. BTW, in a touch of bitter irony, a portion of those fees is an “affordable housing fee” (LOL).